Should SRI investments be fooling us in 2023?
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More and more savers want to give meaning to their savings, and financial professionals understand this well by multiplying the investment vehicles of responsible finance recognized by their labels, especially the SRI label, which has been present in the savings landscape for many years. France. For example, since the Pacte law, life insurance, this favorite investment of the French, has been mandatory among the unit-linked supports of contracts.
The SRI label mostly won over the French. In 2022? More than 1,000 SRI-labeled funds have been offered to the general public. With a major reform of the SRI label planned for next summer, is it worth investing through this label in 2023? What are the benefits of the SRI label? What are the limits of this reform? Will the individual investor win? All our explanations.
Socially responsible investing: Rethinking the SRI label by Bercy
Created by the Ministry of Economy and Finance in 2016, the SRI label allows savers to easily identify funds that respect the principles of socially responsible investment. Since its inception, the SRI label can apply to all collective management tools (ETFs, classic OMPCVMs), but also to real estate funds such as SCPI, OPCI or SCI from 2020. Since that year, the SRI label can also be applied to institutional-type mandates.
As of 2021, a new administration has been implemented whose mission is to allow the SRI label to “adapt to the new expectations of depositors and investors and to remain the main instrument for channeling deposits to the financing of a ‘sustainable economy'”. The owner of the SRI label and therefore the only decision regarding the evolutions of the label The issuing state has planned a major reform in the summer of 2023.
However, there is also a desire to make sustainable finance more accessible and transparent at the European level through the SFDR (“Sustainable Finance Disclosure Regulation”) and in particular its Article 9, which defines products with a sustainable investment objective, i.e. that invests in an economic activity that contributes to an environmental and/or social goal. This article 9, which avoids the definition of sustainable investment, is also problematic because it is open to many interpretations. In addition, the inclusion of this Article in category 9 is based solely on the self-assessment of fund managers.
Responsible finance: the new SRI label tracks greenwashing
Greenwashing is a real problem for sustainable finance, which sometimes lacks credibility despite the existence of various reference labels, whether national or European. Unfortunately, funds sealed with sustainable finance are invested in fossil fuels, nuclear power or armaments, and/or companies with no clear policies in terms of ESG criteria.
The SRI label aims to be more demanding than the SFDR with a dual purpose: to limit greenwashing and to ensure the validity of the label. This is the case today, while the labeling process for the SRI label conforms to fairly precise specifications with 6 requirement categories and third-party certification by three independent bodies certified by the French Accreditation Committee: Afnor Certification, EY France and Deloitte. However, there may be cases of abuse noted by the General Inspectorate of Finance in 2021.
It is in this context that a major reform of the SRI label, planned for 2023, will take place, which will make it more difficult to obtain the valuable label, as many additional measures will come into force, in particular:
candidates for the label must submit a concrete action plan for reducing greenhouse gas emissions;
companies belonging to the fossil fuel and coal sector will be excluded;
indicators should be applied to measure the real impact of portfolios on social, environmental and good governance issues.
According to Michele Pappalardo, president of the SRI Label Committee, which entrusted AGEFI in December 2022, this reform should allow savers to “offer a more reliable and better controlled label with a precise and demanding reference system”: the ISR label avoids the pitfalls associated with the SFDR to buy”.
Socially responsible investing: a label in the form of an increasingly restrictive mille-feuille
While the reform of the SRI label, due to come into effect in the summer of 2023, seems to us to bode well for savers who can confidently invest in this label with the near certainty that their money will be placed in good funds, according to ESG criteria, this reform rightly has many not favorably evaluated by financial professionals with reservations. Indeed, reform is invaluable and its objectivity is commendable. However, we can regret the extreme rigidity in the device. What about supporting companies that need to be tackled rather than facing unrealistic goals?
Some measures can be counterproductive, especially with regard to exclusions. Perhaps it would be better to encourage companies to change their models, for example in terms of CO2 emissions or compliance with ESG criteria, rather than introducing exemptions from the start? Or even encourage management companies to change their models by encouraging shareholder participation. It is in this spirit that several management companies, including Meeschaert Amilton and La Financière de l’Échiquier, have asked the Total group to comply with the Paris climate agreement.
However, we believe it is important to welcome the creation of a ‘tiered label’, a baseline and several optional levels of demand that allow us to offer a clear reading grid for savers, while supporting all companies towards a more sustainable model.